Banks Face Pressure to Raise Deposit Rates Amid Credit Growth
Deposit rates could be headed up in a squeeze for banks
The Economic TimesImage: The Economic Times
As credit growth outpaces deposit mobilization, Indian banks may be forced to increase deposit rates. Recent data from the Reserve Bank of India indicates that deposit rates have nearly fully reflected recent repo rate cuts, but inflation and market conditions could lead to further rate hikes.
- 01Credit growth has outpaced deposit growth for over a decade.
- 02Deposit rates have nearly fully absorbed recent repo rate cuts.
- 03Analysts predict deposit rates may rise due to inflation and liquidity constraints.
- 04From 2023-24 to December 2025, deposits are expected to grow by 9%, while credit could expand by 11.3%.
- 05Competition for deposits is expected to remain high, keeping funding costs elevated.
Advertisement
In-Article Ad
In Mumbai, banks are facing a challenging scenario as credit growth continues to surpass deposit mobilization, leading to potential upward pressure on deposit rates. According to the latest data from the Reserve Bank of India, deposit rates have adjusted close to 100 basis points in response to a 125 basis point reduction in the repo rate, indicating that banks have largely passed on rate cuts to depositors. Analysts like Jignesh Shial from Ambit Capital suggest that the current liquidity constraints and macroeconomic uncertainties limit further reductions in deposit rates. Furthermore, persistent inflation, exacerbated by geopolitical tensions in the Middle East, could prompt the Reserve Bank of India to increase the repo rate, which would subsequently push term deposit rates higher. Over the period from 2023-24 to December 2025, deposits are projected to grow by 9%, while credit is expected to expand by 11.3%. This ongoing trend of credit outpacing deposit growth has persisted for more than a decade, raising concerns about banks' funding costs and profit margins.
Advertisement
In-Article Ad
If deposit rates rise, individuals may see higher returns on savings accounts, but it could also lead to increased borrowing costs.
Advertisement
In-Article Ad
Reader Poll
Do you think banks should increase deposit rates to attract more funds?
Connecting to poll...
More about Reserve Bank of India
Read the original article
Visit the source for the complete story.




